The year of 2020 has been full of madness arising from the pandemic, politics and social unrest.
While suffering together with the rest of the world, China has done relatively well and is the only major economy showing positive growth. With the signing of the Regional Comprehensive Economic Partnership (RCEP) with 14 of its Asian Pacific neighbours and the conclusion of negotiations of the Comprehensive Agreement on Investment (CAI) with the EU, Beijing seems to be at the cusp of breaking through Washington’s wall of containment. It is safe to say that China had started 2020 with a gloomy prospect but ended the year with a triumphant note of optimism.
What will the China tech industry look like in 2021? Predicting the future is often a fool’s errand. While error-prone, reading tea leaves or gazing into the crystal ball can still be useful, providing us with a starting point for serious conversations and rigorous re-calibration. If 2020 has taught us anything, technology does not live in the cleanroom of science and engineering meritocracy. Even though politics cannot bend the underlying scientific principles, they have power in shaping the commercialisation, diffusion, and trajectories of alternative technologies.
If the pandemic and the US presidential election are the top two stories of 2020, number three has to be the US-China technology war. The US’s rounds of torment, threats and sanctions against Chinese companies and scientists is a reminder of the humiliating consequences of being a tech laggard in the late 19th and early 20th centuries.
Even though the US campaign against Chinese tech companies and its witch hunt against China-related scientists will subside, the seed of distrust has grown and China is on a determined quest to avoid tech bullyism.
China will seek more self-sufficiency in tech progress
Even if the new Biden administration restores some rationality and predictability into American foreign policy, serious damage has been done to US-China relations. While China has always been wary of its dependence on the West for the supply of core technologies, never before has the country felt so keenly the danger of such an asymmetric relationship since the Soviet Union pulled its string of support in the 1950s. Even though the US campaign against Chinese tech companies and its witch hunt against China-related scientists will subside, the seed of distrust has grown and China is on a determined quest to avoid tech bullyism. While decoupling may not be in sight (indeed, that would be suicidal for China), divergence in the tech paths is likely to accelerate.
The year 2020 is a testimony of the interdependent nature of the global economic system as well as the frightening power of a few companies possessing core knowhow in the tech ecosystem. While it would be expensive for the US to source products from places other than China (in the short term), it would be fatal for Beijing to be denied access to a long list of Western technologies over which the US has veto powers. Or put it another way, if the relationship between the two sides fell off the cliff, the current asymmetric interdependence would make Beijing vulnerable in a war of attrition. Some people may argue that the American corporations would never be willing to give up a market of 1.4 billion customers. But the Trump administration has demonstrated the power of demagogues and the appeal of at least a good proportion of the American elites to use the “China threat” to mobilise domestic support. It is also unclear how many of the middle- and upper-level bureaucrats hold hawkish views towards China.
While Beijing has good reasons to reduce its technological dependency, the extent, areas and speed at which it can achieve such a grandiose goal is highly debatable. If the country’s past practices give us any clues, we should expect both Beijing and the local governments to set up many state-controlled venture capital funds or outright state subsidy grants to promote innovation.
...there simply is a high level of information asymmetry between private entrepreneurs seeking state resources and the government officials allocating these resources.
Stronger role of the state
While East Asian countries generally have a positive view towards an active role of the state in the market, the track record for the state promotion of technological advancement has been mixed. On the one hand, countries and regions such as Japan, South Korea, Singapore and Taiwan that have successfully managed to grow themselves out of poverty over the past seventy years all seem to embrace the visible hands of the state in the market; on the other hand, there have been some failed efforts in tech promotion, especially in the most recent years. One example is Japan’s nationwide effort to grow its semiconductor sector in the 1980s. At the global frontier where the path for technological advancement is unclear, a country’s success of betting big on one tech trajectory (among the multiple competing ones) may depend on being lucky.
While we shall not suspect the intention or general capability of state bureaucrats, they may hardly be qualified to play the role of venture capitalists. It is rare to find state officials who have spent decades to hone skills in tech development and commercialisation. As a result, there simply is a high level of information asymmetry between private entrepreneurs seeking state resources and the government officials allocating these resources.
Beijing’s eagerness to invest money in promising tech ventures may invite both the most brilliant and the most sneaky. Think of Hanxin, a hailed made-in-China microchip that turned out to be otherwise. One should also not be surprised to see many new Chinese ventures claiming to hold the key to China’s global leadership in quantum computing and quantum communication, autonomous driving, gene editing (and mRNA), electric vehicles and many other domains that are categorised as strategically important. While most of the fraudulent cases may only involve a few hundred thousand dollars, we cannot forget that the solar panel producer SunTech Power played a critical role in devastating the fiscal health of Wuxi (a Yangzi Delta city of great industrial strength) about one decade ago.
...those strategies designed for the physical infrastructure-induced monopolies are doomed to fail in the digital world.
Regulations set to tighten
China and the West do share something in common in their tech policies in 2020 and most likely, they are watching each other closely in the hope of learning something from each other. For a long period of time, Beijing has been holding a laissez-faire attitude towards the country’s internet giants. As a result, a few companies have gradually accumulated power through the building up of a gigantic user base, data, deep-pocket financial resources and tech capabilities to become the overlord of the country’s e-economy. While China wants its domestic firms to become globally competitive and even allows them to accumulate monopoly power in the process, it is hard to fathom that Beijing will allow private actors to tower over state regulators or to rock the boat of social stability by killing off much-needed jobs. While the Ant Group’s switch from the largest IPO ever to the largest IPO ever suspended was a dramatic event, every economic player should have gotten a clear message about the delicate balance that an elephant has to master when dancing in a Chinese shop.
Regulations aimed at digital giants did not start with China. In both the US and the European Union, policy makers have long been thinking about how to regulate those ever-expanding platform companies such as Amazon, Google and Microsoft. One painful reality of today’s world is that the digital revolution, rather than spreading the wealth, has disproportionately benefited an extremely small number of entrepreneurs and their financial backers.
Even though there is an increasing tide among political elites against digital giants, the real danger is that until this moment, regulators and scholars have not come up with welfare-enhancing solutions in curtailing their power. While some countries are pondering to split the giant as they did in the industrial age (divide up the Bells, the Vanderbilts, and the Shells), those strategies designed for the physical infrastructure-induced monopolies are doomed to fail in the digital world. 2021 can be the year where China, Europe, the US and all major economies can learn from one another in growing the digital economy while trying to curb the digital beasts.
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